Answer and Explanation:
When making financial decisions over a 3-year period, two main potential risks or challenges that you may encounter are:
1. Economic Uncertainty:
Economic uncertainty refers to the unpredictability of economic conditions, such as recessions, inflation, or changes in government policies. These factors can impact your financial decisions and outcomes.
Ways to minimize this risk:
a. Stay informed: Keep yourself updated on the current economic conditions, trends, and news that can affect your finances. This will help you make more informed decisions.
b. Diversify your income: Relying on a single source of income can be risky. Consider diversifying your income by exploring additional streams such as freelance work, investments, or starting a side business.
c. Build an emergency fund: Establishing an emergency fund can provide a safety net during uncertain times. Aim to save 3-6 months' worth of living expenses in a liquid and easily accessible account.
2. Personal Life Changes:
Personal life changes such as job loss, illness, or major life events can significantly impact your financial situation. These unexpected events can disrupt your financial plans and require adjustments.
Ways to minimize this risk:
a. Plan for contingencies: Anticipate potential life changes and plan accordingly. For example, have adequate health insurance coverage, disability insurance, or life insurance to protect against unforeseen circumstances.
b. Maintain a flexible budget: Create a budget that allows for flexibility and includes savings for unexpected expenses. This can help cushion the financial impact of personal life changes.
c. Seek professional advice: Consult with financial advisors who can provide guidance on managing risks and adapting your financial plan to accommodate life changes.
By being proactive and taking steps to minimize economic uncertainty and prepare for personal life changes, you can navigate potential risks and challenges when making financial decisions over a 3-year period. Remember, it is important to assess your individual circumstances and seek personalized advice to make the best decisions for your financial well-being.